Forecasting your Contract and Project Expenditures in Liquid
When you track Work Orders in Liquid, you gain visibility into project cost estimates for accurate financial planning and budgeting.
Most small businesses end up trying to control expenses after they’ve been spent, not before. Does that sound efficient to you? Learn how Liquid helps your team develop accurate forecasts.
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Work Orders (WO) and Purchase Orders (PO) are some of the most underutilized tools that small and medium businesses should use for cash management. WOs / POs help you track what’s been spent to date and the estimated remaining spend.
Small businesses should adopt a company-wide process with a Work Order or Purchase Order (PO) system and get explicit agreement on what will be invoiced and when. Everything should be done beforehand so that the invoice is more of a receipt than a mad scramble to check that it’s okay to pay.
How to transition to Work Orders / Purchase Orders
The first step in transitioning to a WO or PO system is to separate out your Master Services Agreement (MSA) from Work Orders. By separating out from the MSA the project-specific details into individual Work Orders, you no longer have to renegotiate the overall engagement each time you want to start a project. You are also able to better focus on the details and terms of the project that are most important.
In Liquid, you can send off a Work Order in less than one minute. It’s easy to add all the project details — including milestones, deliverables, fee schedule, rates, and more — letting you start new work rapidly. Plus, a total project estimate is automatically calculated for all new Work Orders (with a few caveats).
All Work Orders are tied to your MSA, so the overall terms of your engagement — payment terms, confidentiality, etc. — automatically apply to every Work Order.
Project Fee Estimates
For each project in Liquid, the total project fee estimate is editable. This estimate is used to populate the cash forecast and provide improved expense visibility. The value should be the total of all payments you expect to make over the project’s life.
Many of our users have reported that seeing a total estimate helps them appreciate the magnitude of what they are agreeing to — seeing a $60,000 fee estimate looks a lot different from a $5,000/month Work Order.
Using Project Estimates for Planning and Budgeting
Once you use Work Orders in Liquid, you automatically gain visibility into project cost estimates for accurate financial planning and budgeting. On each Work Order card on the Work Orders page in Liquid is the amount paid on that Work Order and the total project fee estimate. At the bottom of each Work Order card, the progress bar visualizes the percentage of the total fee estimate paid to that point.
Our built-in features help you minimize errors and increase the accuracy of your financial projections.
Moreover, all invoices in Liquid are automatically matched against Work Orders, so you’ll reduce your risk of paying an invoice outside of the scope of work. Connecting invoices and WOs / POs also provides an audit trail for your company and can be used by your accounts payable team to avert fraudulent invoices, duplicate payments, and simple errors that result in overbilling. Liquid’s automated Invoice to Work Order matching has saved our users hundreds of thousands of dollars.
When you use Work Orders in Liquid, your invoices are automatically generated for your Vendors — and your Vendors are automatically reminded to send you Invoices. This minimizes the possibility of Vendors forgetting to send invoices for months — leaving you scrambling to find the cash to pay 6 months worth of invoices all at once.
Cash Forecast Report
In addition, using Work Orders in Liquid along with thoughtful fee estimates allows you to use Liquid’s Cash Forecast Report (located under Expense Visibility on the Reports page). This report provides details on month to month estimates of your active Work Orders, so that you know the cash outlay you’ve committed to in total over time. Once a Work Order has been agreed to, even before work begins, you are able to forecast the cash outflow associated with those Work Orders with the Cash Forecast Report.
The Cash Forecast Report is a forward looking report of all active projects and the expected cash outlay (not including any invoices that have already been paid). This report lists Vendors, Work Orders, total estimate, invoiced and paid to date, and the future forecast of cash outlay from the current month to the longest active Work Order. Each of these month columns has the associated monthly estimated costs for that Vendor and Work Order listed. In addition, the report has a sum for each of the month columns, providing you visibility into the forecasted expenses across the future months.
Note that once a Work Order has been moved to state Complete, it will no longer appear in the Cash Forecast Report.
Improve your financial planning with Liquid
By using Work Orders, your company can take full advantage of all Liquid’s built-in features. With Liquid, you can streamline and automate the financial management of your freelancers, independent contractors, and vendors. And you can have company-wide visibility to expenses incurred and projections for upcoming expenses. Liquid makes it easy to have accurate vendor expense projections that you can incorporate into your company’s cash flow forecast.
Ready for better cash forecasting? Request a demo of Liquid today.
Updated: April 22, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.